A decade after the crash, Barclays bets again on bundling U.S. home loans

[turbinetree]

Business News
May 28, 2019 / 9:02 AM / Updated 4 hours ago

Lawrence White, Sinead Cruise 5 Min Read

LONDON (Reuters) - Ten years on from the global financial crisis caused by a crash in bonds tied to U.S. home loans, Britain’s Barclays is betting a return to that market can bring in bumper revenues to fortify its investment bank.

After the crisis, banks initially shunned the business of selling and trading slices of loans tied to residential property, autos or commercial real estate, as such securitizations were demonized for their role in the crash.

But now Barclays is preparing to make its comeback, having assembled a team of over 140 securitization bankers and traders with plans to hire more as investors clamor for the higher returns such deals offer compared with traditional stocks and bonds.

Having pared back its securitization business in recent years amid a wider restructuring, Barclays’ head of global markets Stephen Dainton said the time was right for the British bank to re-enter the market in force.

https://www.reuters.com/article/us-barclays-strategy-usa/a-decade-after-the-crash-barclays-bets-again-on-bundling-u-s-home-loans-idUSKCN1SY1EH

-snip-

A report by the U.S. Treasury in October 2017 prompted by an executive order from President Donald Trump backed the view that post-crisis regulation of the sector went too far.

“The result has been to dampen the attractiveness of securitization, potentially cutting off or raising the cost of credit to thousands of corporate and retail consumers,” the report said. It recommended loosening the capital requirements for banks underwriting securitizations.

So in other words let the "ratfucking" begin all over again........................

The world has been in this movie before.................and did not end well....................

[genxlib]

1. In theory, it can be beneficial

The problem before is that it all became so theoretical that it became wishful thinking.

In theory, bundling debt can be used to moderate the risks across multiple instruments so that the actual result will come into alignment with the average risk across that class of instruments. Much like insurance pools spread out risks from individual costs to average costs across the group.

The problem back then was two fold...

Number one, they somehow convinced themselves that moderating risk was the same thing as eliminating it. Which caused them to go mad with greed. They further compounded the problem by buying insurance for their potential losses from the likes of AIG for pennies on the dollar of the actual risk. They basically kept the profits and tried to pass the risk along until everyone thought they had found the magic elixir of risk-free profits. Fucking idiots and fraudsters.

Second, they were way over extended on how much cash on hand they kept versus the loaned amount. When the loans went upside down even a little bit, they were completely upside down. At that point, they couldn't just take the loss because it was money they didn't have.

If you can do the bundling with adequate assessment of risk and adequate capital, they can make good sense.

Of course I do not trust these people to do either of those things.

[zipplewrath]

3. "Adequate assessment of risk"

This was really the core problem. Subprime loans were listed as Triple A when they should have been more like junk. And you can't sell insurance without being regulated AS an insurance company.

[genxlib]

4. Yes

I left out the step where the Rating Agencies had to sign-off on the bundles as being high quality. That was yet another failure point.

A lot of interconnected institutions had to fuck up for things to play out the way they did.

You could make the argument that any one of the players could have stopped it by just applying some common sense.

[zipplewrath]

5. Which is why we're supposed to have regulations

But folks like Greenspan thought the market would regulate itself. Ya know, like how casinos let the players regulate the game and all. Oh, wait...

[SWBTATTReg]

2. I laughed when I read the report by the US Treasury regarding the dampening of credit...

availability to thousands. Horse Manure!! With interest rates hovering at near record low levels for quite some time and the home real estate and/or commercial real estate markets haven't been negatively impacted by high interest rates, this statement simply doesn't ring true. All this is, is that rump's rich buddies bitched at him about not being able to do bungling anymore of home loans, thus losing a big source of income (and causing the great crash of 2008). If they allow this, I shutter to think about it, with all of the new tools available (options etc.), I think the potential for damage to the economy is greater than it was in 2008.


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A report by the U.S. Treasury in October 2017 prompted by an executive order from President Donald Trump backed the view that post-crisis regulation of the sector went too far.

“The result has been to dampen the attractiveness of securitization, potentially cutting off or raising the cost of credit to thousands of corporate and retail consumers,” the report said. It recommended loosening the capital requirements for banks underwriting securitizations.
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